Saturday, February 28, 2009

Housing Correction

According to Calculated Risk, total housing starts were 464 thousand annualized for the month of January. Now, I remember reading a government report stating that new household units of people were forming in the U.S. at a rate of 1.5 million a year. If so, any bubble in excess capacity over the last several years is quickly reversing itself (see chart). Assuming, of course, that people can still get jobs to afford shelter.

Tuesday, February 24, 2009

Attention Under Siege

Thanks to Miguel for finding this article.

To avert a dark age, we must take several steps:

Question the values that undermine attention - Helped by influential tools that are seedbeds of societal change, we’ve built a culture over generations that prizes frenetic movement, fragmented work and instant answers. Recently, my morning paper carried a front-page story about efforts “in a new age of impatience” to create a quick-boot computer. Explained one tech executive, “It’s ridiculous to ask people to wait a couple of minutes” to start up their computer. The first hand up in the classroom, the hyper-businessman who can’t sit still, much less listen - these are markers of success in American society. Instead of venerating scattershot focus, rushed detachment, knowledge built on sound bites, we need to value whole focus, full awareness and the difficult work of knowledge creation.

Sunday, February 22, 2009

Your Weekly Address

Financial Innovation

From Volcker's recent speech:

Volcker: When it comes to innovation, I'll raise a question to you, what is the most important financial innovation of the past 20 or 30 years for the average person? I think its the automatic teller machine. It's not any high class sophisticated financial operation, its a technical improvement which has sure changed banking. I have more connection with my automatic teller machine, as do many of you, than any other part of the financial markets.

Wednesday, February 18, 2009

Watching The Greats

Berkshire Hathaway and Fairfax Financial are perhaps the two of the greatest asset allocating machines out there today. They both released their 13-F filing yesterday, listing their common stock holdings at the end of the December period. Paying particular attention to Fairfax, we see a lot of major positions:

(Value, in $)

102 mil Alcoa
99 mil Burlington Northern
271 mil Dell
162 mil Frontier Communications
195 mil GE
234 mil Intel
459 mil Johnson and Johnson
98 mil King Pharma
294 mil Kraft Foods
96 mil Level 3 Comm.
159 mil Magna Intl
318 mil Pfizer
104 mil Wells Fargo

*Note: Positions in bold are new.

Not surprisingly, there is a lot of overlap with Buffett, who holds major positions himself in Burlington Northern, Kraft, Wells Fargo, and Johnson and Johnson.

According to Nasdaq, the total value of U.S.-listed common stock holdings at Fairfax is now up to *$4.7 billion (this excludes any foriegn holdings). Just over two years ago, the total common stock portfolio was at about $1.8 billion, and that was significantly hedged with market short positions. Prem and co. are at last putting major money into work with stocks, indicating that they see significant returns ahead. If they're right, great things lie in store for shareholders of Fairfax.


*Correction, 2/19/09: included in the Nasdaq portfolio was $2.2 billion in value of Odyssey Re shares which were not included under equities in their 2006 balance sheet. Because Fairfax reported earnings today however, we know that total common stocks is at $3.8 billion, with $2.3 billion added to investments in the quarter. So although not as large as the originally stated notional amount, there has been a considerable increase in their common stock exposure.

Disclosure: The author owns shares in Fairfax Financial, Odyysey Reinsurance, and Burlington Northern.

Sunday, February 15, 2009

Buffett's Buy Metric

...Fortune first ran a version of this chart in late 2001 (see "Warren Buffett on the stock market"). Stocks had by that time retreated sharply from the manic levels of the Internet bubble. But they were still very high, with stock values at 133% of GNP. That level certainly did not suggest to Buffett that it was time to buy stocks.

But he visualized a moment when purchases might make sense, saying, "If the percentage relationship falls to the 70% to 80% area, buying stocks is likely to work very well for you."...

See the complete article here.

Saturday, February 14, 2009

On Globalization

Ran across this during my reading:
Where one nation has got the start of another in trade, 'tis very difficult for the latter to regain the ground it has lost; because of the superior industry and skill of the former, and the greater stocks which its merchants are possest of, and which enable them to trade for so much smaller profits. But these advantages are compensated, in some measure, by the low prices of labour in every nation that has not an extensive commerce, and does not very much abound in gold and silver. Manufactures, therefore, gradually shift their places, leaving those countries and provinces, which they have already enriched, and flying to others, whither they are allured by the cheapness of provisions and labour, till they have enriched these also, and are again banished by the same causes. And in general we may observe, that the dearness of every thing, from plenty of money, is a disadvantage, that attends an established commerce, and sets bounds to it in every country, by enabling the poorer states to undersell the richer in all foreign markets.

-David Hume, Of Money- 1752

It's all just a little bit of history repeating!

Lessons From Animal Behavior

A fascinating article from The Economist:


In a study reported in a special issue of the Philosophical Transactions of the Royal Society B, researchers led by Dr List looked at colonies of honeybees (Apis mellifera), which in late spring or early summer divide once they reach a certain size. The queen goes off with about two-thirds of the worker bees to live in a new home leaving a daughter queen in the nest with the remaining worker bees. Among the bees that depart are scouts that search for the new nest site and report back using a waggle dance to advertise suitable locations. The longer the dance, the better the site. After a while, other scouts start to visit the sites advertised by their compatriots and, on their return, also perform more waggle dances. The process eventually leads to a consensus on the best site and the swarm migrates. The decision is remarkably reliable, with the bees choosing the best site even when there are only small differences between two alternatives.

But exactly how do bees reach such a robust consensus? To find out, Dr List and his colleagues made a computer model of the decision-making process. By tinkering around with it they found that computerised bees that were very good at finding nesting sites but did not share their information dramatically slowed down the migration, leaving the swarm homeless and vulnerable. Conversely, computerised bees that blindly followed the waggle dances of others without first checking whether the site was, in fact, as advertised, led to a swift but mistaken decision. The researchers concluded that the ability of bees to identify quickly the best site depends on the interplay of bees’ interdependence in communicating the whereabouts of the best site and their independence in confirming this information.

This is something members of the European Parliament should think about. In the same journal, Simon Hix, also of the London School of Economics, and his colleagues examined their voting and concluded that, as might be expected, it was along party-political lines even though the incentives to do so were far less than at national parliaments. Dr Hix and his colleagues reckon that European parliamentarians share the collection of information but, unlike the honeybees, they do not necessarily progress to investigating the issues for themselves before taking a vote.

There is danger in blindly following the party line, a danger that the honeybees seem to avoid. Condorcet’s theory fails to consider whether there is an inbuilt bias among a group that comes together to consider a problem. This “groupthink” occurs when people copy one another. According to Dr List: “The swarm manages to block and prevent the kind of groupthink that can bedevil good decision making.” Dr List adds that people demonstrate this kind of bad decision-making when investors pile into a stock and others follow, creating a bubble for which there is no good reason.


Thursday, February 12, 2009

Daily Tip For Improvement #2

One secret recently put to words for me is that you should work hard first and foremost on yourself. To steal an example from the great motivational speaker Jim Rohn: A salesman putting in three extra hours a day at work may notice a slight increase in his sales. But that same salesman spending that three extra hours towards improving his skills and techniques, towards understanding what does and does not work, can notice a phenomenal change in his success. The slight change in focus means all the world.

So, I've been a harsh critic of myself recently, asking questions such as:
"Am I correctly communicating across my desired message?"
"Am I making the best use of my time?"
"How do my actions and habits match my long term goals?"

I end with a quote from Jim:
The only way things are going to change for you is when you change. What are you going to change that will in turn change your life? If you keep living the way you are right now, you will continue to produce the same life that you already have. That's the way it works.

Wednesday, February 11, 2009

Daily Tip For Improvement

Fascinating things are being discovered in nueroscience. One concept that has particularly caught my attention is neuro-plasticity. It describes the ability of the brain to change and strengthen itself to better cope with its surroundings Even when specific brain regions have become damaged, scientists have found that the brain can re-wire so that new sections take over the lost function.

I've been reading a fascinating book on the subject titled "The Brain That Changes Itself" by Norman Doidge. In it, two points are repeatedly stressed. The first is the following:

Neurons that fire together, wire together. Neurons that fire apart, wire apart.
That is, neurons are the centerpiece of a lot of the activity within our brain. Whenever we act, several different neural pathways all fire simultaneously and invoke certain reactions in your brain. So for example, when you think of Chipotle, it might also trigger thoughts of their delicious burritos, their free student drinks, their distinctive brown paper bags, or images of your local Chipotle brand, or the general positive feelings you have towards the brand. And each time you think about it, these neurons are firing and you are reinforcing these images and connections in your brain.

My tip today is to become more aware of the actions you perform, and what other feelings or thoughts you associate with them. Think of ways you can improve, and learn to associate that with a relevant activity. As an example, I have been making it a point to stress both speed and penmanship while taking my notes in class. Every time I emphasize this, I am reinforcing both qualities in my general writing and noticeable improvement has already taken place.

Use positive reinforcement for those admirable things you do. Do the opposite for those bad habits you've been always wanting to kick. It's a process, but in time your brain will re-wire and you can change yourself for the better.

Disclosure: The author owns a position in Chipotle Mexican Grill.

Tuesday, February 10, 2009

Math, Meet Music

This is interesting. Spotted first by Miguel at Simoleon Sense, a blog I highly recommend.

Ditch the Paper, Distribute E-Readers?

A sense of things to come:

And then there's the math: From the NYT's financial report, production costs in terms of raw materials and wages/benefits tally around $844 million a year. Carlson has info suggesting the newsroom costs total around $200 million a year, meaning it costs some $644 million to print and distribute the physical newspaper.

The Times reportedly has 830,000 subscribers. A Kindle costs $359. Thus distributing a free Kindle to each subscriber would cost about $298 million.

If the times killed its paper print-run and followed the Kindle-only model, that would leave the newspaper with $346 million in its pocket. Okay, distributing the newspaper electronically in a secure way needs some electronic infrastructure...let's stick a figure of $10 million on that. That still leaves $336 million to spare--a figure not to be sniffed at.


Saturday, February 07, 2009

Warren Buffett on President Obama

I've got a conviction about him that I don't get very often... He has as much potential as anyone I've seen to have an important impact over his lifetime on the course that America takes.
From Warren Buffett Speaks by Janet Lowe